GENERAL PRINCIPLES OF TAXATION Flashcards
It refers to the inherent power of the state to demand enforced contribution for public purposes to support the government
Taxation as a power
This is the legislative act of laying a tax to raise income for the government to defray its necessary expenses
Taxation as a process
This means that taxation is a means of allocating government burden to the people
Taxation as a mode of cost allocation
What are the inherent powers of the state?
- Power of Taxation
- Police Power
- Power of Eminent Domain
This is the power to take property for the support of the government and for its public purpose
Power of Taxation
This is the power to enact laws to promote the general welfare of the people. It is wider in application because it is the general power to make laws.
Police Power
This is the power to take private property for public use upon payment of just compensation
Power of Eminent Domain
What are the similarities of the Three Powers
- All three are necessary attributes of sovereignty, resting upon the necessity
- All are inherent powers of the State
- All are legislative in nature
- They are ways in which the State interferes with private rights and property
- They exist independently with the Constitution although the condition for their exercise may be prescribed or limited by the Constitution
- They all presuppose an equivalent compensation received by the persons affected by the exercise of the power, whether directly, indirectly, or remote
- The exercise of these powers by the local government units may be limited by national legislature.
What are the Stages of Taxation
- Levy or Imposition
- Assessment of tax
- these all comprise the taxation system
How does the Stage of Taxation exercise?
-Legislation of laws by Congress
-Tax ordinances by the Local Sanggunian
-Tax collection by the administrative branch of the government
Discretion of Taxing Power intends to:
- Amount or rate of the tax situs of taxation
- Kinds of tax to be collected method of collection
- Apportionment of the tax purpose for its levy, provided for public purpose
- The person, property and exercise to be taxed, provided within its jurisdiction
Taxes are indispensable to the existence of the state. Without taxation, the state cannot raise revenue to support its operations.
The Life Blood Doctrine
Nature or Characteristics of the Power of Taxation
- For public use exaction payable in money
- Inherently legislative in nature territorial
- Subject to international comity or treaty
- Not absolute being subject to constitutional and inherent limitations
Purpose of Taxation –> To raise revenue
Primary Purpose
Secondary Purpose
a. Regulatory
b. Compensatory
Regulatory or Compensatory?
-To regulate the conduct of business or professions
-To achieve economical and social stability
-To protect local industries
Regulatory
Regulatory or Compensatory?
-Key instrument of social control
-Check inflations
-Reduces inequities in wealth distributions
-Tools on international bargains
-Strengthens anemic enterprises
-Promotes science and inventions
-Provide incentives
-Uses an implement in the exercise of police power to promote general welfare
Compensatory
Modes of Cost Allocation
- Benefit Received Theory
- Ability to Pay Theory
This mode of cost allocation said that tax payment should be based on benefits received and everyone is conclusively presumed receiving benefits from the government
Benefit Received Theory
This mode of cost allocation said that tax payments should be relative to the ability of taxpayers to pay and has two categories in assessments of ability which is vertical equity and horizontal equity
Ability to Pay Theory
Theory or Basis of Taxation?
The existence of the government is a necessity and it cannot continue without means to support itself.
Theory of Taxation
Theory or Basis of Taxation?
The government and the people have the reciprocal and mutual duties of support and protection
Basis of Taxation
This means that taxation is supreme, comprehensive, unlimited, and plenary. It also includes the power to destroy.
The Scope of Taxation
What are the Current Objects of Taxation?
- Business
- Interacts
- Transactions
- Rights
- Acts
- Persons
- Properties
- Privileges
What are the Constitutional Limitation
- Observance of due process of law
- Equal Protection of the law
- Uniformity in taxation
- Progressive scheme of taxation
- Non-imprisonment for non-payment debt or poll tax
- Non-impairment of obligation and contract
- Free worship rule
- Non-appropriation of public funds or property for the benefit of any churches, sect or system of religion
- Exemption of religious, charitable or educational entities, non-profit cemeteries, churches and mosque from property taxes
- Exemption from taxes of the revenues and assets of non-profit, non-stock educational institutions including grants, endowments, donations or contributions for educational purposes
- Concurrence of a majority of all members of Congress for the passage of a law granting tax exemption
- Non-diversification of tax collections
- Non-delegation of the power of taxation Exception:
a. Power to tax was delegated to the President under Flexibility Clause of the Tariff and Customs Code
b. Power to tax was delegated to the local government units under the Local Government Code
c. Matters involving the expedient and effective administration and implementations of assessment and collection of taxes or certain aspects of taxing process that are not legislative in character - Non-impairment of the jurisdiction of the Supreme Court to review tax cases
- Appropriations, revenue or tariff bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments
- Each local government unit shall exercise the power to create its own sources of revenue and shall have a just share in the national taxes
What are the Inherent Limitations? (TIEPD)
- Territoriality of taxation
- Subject t international comity or treaty
- Tax exemption of the government
- Tax is for public use
- Non-delegation of the power of taxation
***THE LAST 2 LIMITATIONS ARE ALSO CONSTITUTIONAL LIMITATIONS
This is the place of taxation
Situs of Taxation
What are the Factors that Determine the Situs of Taxation?
- Nature, Kind or classification of the tax
- Subject matter of the tax
- Citizenship of the taxpayer
- Residence of the taxpayer
- Sources of income
- Place of exercise, business or occupation being taxed
- Place where income-producing activity was held or done
What are the Applications for the Territoriality and the Concepts of Situs
- Persons
- Community Development Tax
- Business Taxes
- Privilege or Occupation Tax
- Real Property Tax
- Personal Property Tax
- Income
- Transfer Taxes
- Franchise Taxes
- Corporate Taxes
Application for the Territoriality and the Concepts of Situs
Residence of the taxpayer
Persons
Application for the Territoriality and the Concepts of Situs
Residence or domicile of the taxpayer
Community Development Tax
Application for the Territoriality and the Concepts of Situs
Where the business was conducted or place where the transaction took place
Business Taxes
Application for the Territoriality and the Concepts of Situs
Where the privilege is exercised
Privilege or Occupation Tax
Application for the Territoriality and the Concepts of Situs
Where the property is located
Real Property Tax
Application for the Territoriality and the Concepts of Situs
a. Tangible - where they are physically located
b. Intangible - domicile of the owner unless property has acquired a situs elsewhere
Personal Property Taxes
Application for the Territoriality and the Concepts of Situs
Place where the income is earned or residence or citizenship of the taxpayer
Income
Application for the Territoriality and the Concepts of Situs
Residence or citizenship of the taxpayer or location of the property
Transfer Taxes
Application for the Territoriality and the Concepts of Situs
State that grants the franchise
Franchise Taxes
Application for the Territoriality and the Concepts of Situs
Depend on the law of incorporation
Corporate Taxes
This is taxing the object or subject within the territorial jurisdiction twice, for the same period, involving the same kind of tax by the same taxing authority
Double Taxation
What are the kinds of Double Taxation?
- Direct Double Taxation
- Indirect Double Taxation
This kind of double taxation is objectionable and prohibited because it violates the constitutional provision on uniformity and equality
Direct Double Taxation
This kind of double taxation has no constitutional violation. Example is taxing the same property by two different taxing authority
Indirect Double Taxation
This double taxation is caused by two different taxing authorities, one domestic and one foreign
International Double Taxation
What are the Remedies to Double Taxation
- Provision for tax exemption
- Allowance for tax credit
- Allowance for principle of reciprocity
- Enter into treaties with and agreement with foreign government
Forms of Escapes from Taxation
Those that will not result in loss of revenue to the government
- Shifting
- Capitalization
- Transformation
Forms of Escapes from Taxationto
Those that will result to loss of revenue to the government
- Tax Evasion
- Tax Avoidance
- Tax Exemption
Forms of Escapes from Taxation
This is the process of transferring the tax burden from the statutory taxpayer to another without violating the law
Shifting
Forms of Escapes from Taxation
This is where the seller is willing to lower the price of the commodity provided the taxes will be shouldered by the buyers
Capitalization
Forms of Escapes from Taxation
This is where the manufacturer absorbs the additional taxes imposed by the government without passing it to the buyers for fear of lost of his market. Instead, it increases quantity of production, thereby turning their units of production at a lower cost resulting to the transformation of the tax into a gain through the medium of productions
Transformation
Forms of Escapes from Taxation
This is also known as “tax dodging”. This is resorting to acts and devices that illegally reduces or totally escape the payment of taxes that are due to the taxpayer. They are prohibited and are therefore are not subject to penalties.
Tax Evasion
Forms of Escapes from Taxation
This is also known as “tax minimization scheme”. This is the reduction or totally escaping payment of taxes through legally permissible means that are not prohibited and therefore are not subject o penalties
Tax Avoidance
Forms of Escapes from Taxation
This is an immunity, privilege or freedom from payment of a charge or burden to which others are obliged to pay
Tax Exemption
What are the Kinds of Exemption
- Express
- Implied
- Total
- Partial
Kinds of Exemption
This is granted by the constitution, statue, treaties, ordinance, contracts or franchise
a. constitutional
b. statutory
c. contractual
Express
Kinds of Exemption
This is exempted by accidental pr intentional omission
Implied
Kinds of Exemption
This is exemption from all taxes (OFWs)
Total
Kinds of Exemption
This is exemption from certain taxes, partially or totally
Partial
What are the Grounds for Exemption?
- It may be based on a contract
- It may be based on grounds of public policy. Example is granting of exemptions to rural banks and sweepstakes or lotto winngs
- It may be based on some grounds to foster charitable and other benevolent institutions
- It may be created under a treaty on the grounds of reciprocity
- It may be created to lessen the rigors of international double or multiple taxation
Distinction Between Tax Evasion and Tax Avoidance
Tax Evasion
-It is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to penalties
-It s accomplished by breaking the law
-It connotes fraud, deceit and malice
Distinction Between Tax Evasion and Tax Avoidance
Tax Avoidance
-It is a tax-saving device within the means sanctioned by law
-Accomplished by legal procedures and do not violate the law
-No fraud is involved
Tax Exemptions are:
-Is not automatic
-Is non-transferable
-Is recoverable by the government (except when granted under a valid contract or by the Constitution)
-Rule shall be uniform
-Does not contravene the Lifeblood Doctrine
-Is always disfavored
-Is allowed only under a clear and unequivocal provision of the law
-On real property tax will be based on the Doctrine of Usage and not Doctrine of Ownership, except for real properties owned by the government which is absolutely exempt from taxation
-On real property tax cannot be granted by local government but can condone real property tax liabilities in special cases
-On local taxes can be granted by local governments but they cannot condone existing liabilities on local taxes
What are the Fundamental Doctrine in Taxation
- No court may enjoin the collection of taxes
- Claim for exemptions shall be interpreted strictly against the taxpayer
- A law that permit deduction from the tax base is strictly construed against the taxpayer
- Tax assessment ae presumed to be correct and done in good faith
- Tax laws are generally prospective in application
- Tax are not subject to compensation or set-off
- Refund of taxes do not earn interest because interest do not run against the government
This is a general pardon or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of tax evasion or violation of tax laws. The purpose is to give the erring taxpayer a chance to reform and become part of the society with a clean slate.
Tax Amnesty
This means to remit or o desist or refrain from exacting or imposing tax. It cannot extend to refund of taxes already paid when obtaining condonation
Tax Condonation
Tax Amnesty or Tax Exemption
-Connotes condonation from payment of existing tax liability
-The grantee pays a portion
-Not always available
Tax Amnesty
Tax Amnesty or Tax Exemption
-There is no tax liability at all
-The grantee need not pay anything
-Can be availed of by any qualified taxpayer
Tax Exemption
